Chapter 7 Capacity Planning and Management Homework problems

Chapter 7. Capacity Planning and Management Homework problems: 1, 2, 5, 6, 7, 8, 9.

Capacity planning and management addresses two managerial problems: Matching capacity to plans–by either providing sufficient capacity to execute the plan or adjusting the plan to meet available capacity. Consider the marketplace implications of faster throughput times–at the expense of reduced capacity utilization.

1. The Role of Capacity Planning in MPC Systems The primary objective of capacity planning techniques is to estimate capacity requirements early enough to be able to meet those requirements Flawless execution of the capacity plan allows the firm to avoid unpleasant surprises l Insufficient capacity leads to deteriorating delivery performance l Excess capacity may be a needless expense

1. The Role of Capacity Planning in MPC Systems Capacity Planning: The process of determining the amount of capacity required to produce in the future. This process may be performed at an aggregate or product-line level (resource (requirements) planning), at the master – scheduling level (rough-cut capacity planning), and at the material requirements planning level (capacity requirements planning). Objective is to ensure a match between capacity available in specific work centers and capacity requirements implied by the production plan, MPS, and detailed material plans (note: all 3 levels). Its links to other MPC systems, see Fig. 7. 1

Capacity Planning in the MPC System Long Range Resource (requirements) planning (RRP) Rough-cut Capacity Planning (RCCP) Medium Range Capacity Requirement Planning (CRP) Sales and operations Planning (SOP) Master production Scheduling (MPS) Detailed material Planning (MRP) Short Range Finite Loading Input/output analysis Shop-floor systems Supplier systems Demand management

1. The Role of Capacity Planning in MPC Systems Resource (requirements) Planning: Capacity planning conducted at the business plan level. It is the process of establishing, measuring, and adjusting limits or levels of long-range capacity. Resource planning is normally based on the sales & operations plan but may be driven by higher level plans beyond the time horizon for the production plan, e. g. , the business plan. It addresses those resources that take long periods of time to acquire. Resource planning decision always require top management approval. Synonym: long-range resource planning, resource requirements planning (RRP).

1. The Role of Capacity Planning in MPC Systems Rough-Cut Capacity Planning (RCCP): The process of converting the master production schedule (MPS) into requirements for key/critical resources, often including labor, machinery, warehouse space, suppliers’ capabilities, and in some cases, money. Ø Comparisons of capacity required of items in the MPS to available capacity is usually done for each key resource. Ø Three approaches to performing RCCP are: capacity planning using overall factors (CPOF), capacity bill (bill of capacity), and resource profile. Ø 7

1. The Role of Capacity Planning in MPC Systems Capacity Requirements Planning (CRP): Ø The process of determining in detail the amount of labor and machine resources required to accomplish the tasks of production. Ø Open shop orders (scheduled receipts) and planned orders (i. e. , orders planned for future release) in the MRP system are input to CRP, which through the use of part routings and time standards translates these orders into hours of work by work center by time period. Ø Even though rough-cut capacity planning may indicate that sufficient capacity exists to execute the MPS, CRP may show that capacity is insufficient during specific time periods. 8

1. The Role of Capacity Planning in MPC Systems Finite Loading: Assigning no more work to a work center than the work center can be expected to execute in a given time period. Ø The specific term usually refers to a computer technique (called advanced production scheduling (APS)) that involves calculating shop priority revisions in order to level load operation by operation. Ø Finite loading can be seen as a shop scheduling process as well as a capacity planning procedure. Ø 9

1. The Role of Capacity Planning in MPC Systems Input/Output Control: A technique for capacity control where planned and actual inputs and planned and actual outputs of a work center are monitored. Planned inputs and outputs for each work center are developed by capacity requirements planning and approved by manufacturing management. Ø Actual input is compared to planned input to identify when work center output might vary from the plan because work is not available at the work center. Actual output is also compared to planned output to identify problems within the work center. Ø Syn: input/output analysis, production monitoring. Ø 10

Links to Other MPC System Module (Summary) Resource Planning • Linked to sales and operations planning (SOP) • Converts SOP data to aggregate resource units Rough-Cut Planning • Linked to Master Production Schedule (MPS) • Estimates capacity requirements of MPS Capacity Requirements Planning • Linked to material requirements planning (MRP) • Prepares detailed capacity plan based on time-phased material plans Finite Loading • Linked to material planning and shop floor control • Considers adjustment of plans due to capacity utilization Input/output Analysis • Linked to shop floor control • Monitors actual consumption of capacity during execution of detailed material planning 11

2. Capacity Planning and Control Techniques Capacity planning using overall factors (CPOF) Capacity bills more Resource profiles sophisticated Capacity requirements planning (CRP) Ø The first three procedures are for rough-cut capacity planning (RCCP) and can be used with or without MRP. Capacity requirements planning (CRP) has to be used in conjunction with time-phased MRP records. 12

2. 1 Capacity planning using overall factors (CPOF) 1. 2. 3. 4. MPS as the input Based on standards or historical data for end products Overall labor and/or machine-hour capacity requirements are estimated. Example: Fig. 7. 2 and 7. 3 Ø Pros: ease of calculation and minimal data requirements Ø Cons: valid only when the product mixes or historical divisions of workload between work centers remain constant. 13

CPOF Example (Fig. 2 and 3) Total required capacity = (33*0. 95)+(17*1. 85) = 62. 80 Work center capacity = Total required capacity *Historical percentage (e. g. , 62. 8 * 60. 3%=37. 87)

2. 2 Capacity Bills Rough-cut capacity planning method that provides more direct link to individual end products Bill of capacity indicates total standard time to produce one unit of an end product (by work center) Master production schedule data is then used to estimate capacity requirements for each work center Requires more data than CPOF procedure

2. 2 Capacity Bills In addition to what’s provided by CPOF, capacity bills takes into account any shifts in product mix. As a result, more data (e. g. , BOM, routing, labor or machine hour for each operation) must be available. Figures 7. 4 ~ 7. 6. Ø Capacity bills is more desirable than CPOF especially for firms experience significant period-toperiod product mix variation. Ø Learn how to prepare capacity bill Ø Compare Fig. 7. 3 with Fig. 7. 6 for results. 16

Capacity Bill Example Std. Setup hours are spread over the standard lot size Total hours include both std. run time and std. setup time

Capacity Bill Example (Fig. 5 and 6) MPS quantities are multiplied by bill of capacity to determine work center capacity requirements by period (33*0. 05 + 17*1. 30 = 23. 75)

2. 3 Resource Profiles The standard hours of load placed on a resource by time period. That is, production lead time data has to be taken into account to provide time-phased projection of the capacity requirements for individual production facilities. Synonym : bill of resources, product load profile Figures 7. 7~7. 9. (Pay attention to 7. 8) Ø Bill of Resources: A listing of the required capacity and key resources needed to manufacture one unit of a selected (typical) item or family. The resource requirements are further defined by a lead-time offset so as to predict the impact of the item/family scheduled on the load of the key resource by time period. 19

Resource Profile Example (Fig. 7. 7) Production of one unit of product A in period 5 requires production activity in periods 3, 4, and 5 and in work centers 100, 200, and 300

Resource Profile Example (Fig. 7. 8) Requirements (by work center and period) for one unit of end product are multiplied by the MPS plan to determine capacity requirements These requirements are then summed over all periods to finalize the process

2. 4 Capacity Requirements Planning (CRP) Capacity requirements planning differs from the rough-cut planning procedures Utilizes time-phased material plan from MRP Takes into account materials in inventory Accounts for the current status of work-inprocess Accounts for service parts and other demands not accounted for in the MPS Requires more inputs and more computational resources

2. 4 Capacity Requirements Planning l Capacity Requirements Planning (CRP): Ø Input includes BOM + routing + time standards + lead time (note: these are required by Resource Profiles) plus MRP (i. e. , planned orders, WIP, scheduled receipts). Example, Fig. 7. 10. 23

Detailed MRP Data Capacity Requirements Planning Example Scheduled/planned quantity multiplied by processing time for work center This process is repeated for each work center to complete the plan

3. Scheduling Capacity and Materials Simultaneously Capacity requirements planning doesn’t consider capacity when planning materials Assumes that capacity can be adjusted, given sufficient warning Planning capacity and materials at the same time allows construction of a plan that works within current capacity constraints

Finite Capacity Scheduling Simulates job order start and finish times in each work center Establishes a detailed schedule for each job in each work center When a work center’s capacity is not sufficient for all planned jobs, prioritization rules determine which jobs will be shifted to later times

3. Scheduling Capacity and Materials Simultaneously Finite loading/scheduling can be seen as an extension of the approach used by CRP systems, except CRP calculate only capacity needs and it does not make adjustments for infeasibility. Finite scheduling determines which jobs will first be processed/completed based on various priority rules, though it does not solve the under-capacity problem. The result of finite loading is a set of start and finish dates for each operation at each work center based on work center capacities and the other scheduled jobs. (see Fig. 7. 11). 27

Finite Capacity Scheduling Product A does not consume all available capacity Combination of all products consumes all available capacity in several periods Planned orders are shifted to stay within capacity limitations

3. Scheduling Capacity and Materials Simultaneously Finite loading/scheduling approaches: Vertical loading: deciding on which job to schedule next in a work center with a focus on planning and utilizing the capacity of a work center independently. Horizontal loading: the focus is on the entire shop orders with the highest priority shop order or job is scheduled in ALL of its centers. The horizontal loading may be in conflict with vertical loading, as horizontal loading may create more “holes” in the schedule (i. e. , capacity utilization at work centers may not be as high). Nevertheless, horizontal loading will complete whole jobs faster than vertical loading. Back scheduling: scheduling job backward from their due dates. Front scheduling: scheduling job into the future, starts with the current date, so each job is completed as soon as possible. e. g. , Advanced Production Scheduling (APS) Fig. 12 & 13. 29

4. Management of Capacity Planning/Utilization Capacity monitoring with Input/Output Control: Ø Never release work that can not be completed, e. g. , Fig. 7. 14. Ø Backlog: All of the customer orders received but not yet shipped. Sometimes referred to as “open orders” or “ the “order board”. Syn: order backlog. Ø Backorder: An unfilled customer order or commitment. It is an immediate (or past due) demand against an item whose inventory is insufficient to satisfy the demand. 30

Capacity Monitoring with Input/Output Control Planned inputs are determined by the capacity planning process Planned outputs depend upon the nature of the work center Capacity-constrained planned output is determined by the processing rate of the work center Non-capacity-constrained planned outputs match planned inputs Differences between plan and actual must be addressed (management by exception)

Managing Bottleneck Capacity–Theory of Constraints Determine bottleneck work centers Rough-cut capacity planning Capacity resource planning Look for quick solutions to eliminate bottlenecks Expand capacity Alternate routings Concentrate scheduling efforts on managing bottleneck resources Schedule jobs that run through bottlenecks separately from non-bottleneck jobs Use finite scheduling for bottleneck jobs, with horizontal loading and back scheduling for the most critical

Capacity Planning in the MPC System Short-term capacity planning problems can be reduced by well-executed production and resource planning Efficient use of sufficient capacity by a good shop-floor system reduces capacity issues

4. Management of Capacity Planning/Utilization Measure of Capacity: Ø Direct labor cost and its role in total production cost Ø Hiring/firing vs. lifetime employment Ø Machine/equipment capacity in the new manufacturing environment. e. g. , computer integrated manufacturing and flexible automation. Ø Capacity utilization and flexibility 34

4. Management of Capacity Planning/Utilization l Choice of the planning technique: general justification Low cost Ease of preparation simplicity CPOF l Accuracy Complexity Capacity bills Resource profiles Environmental dependent-- in JIT: Ø Ø Capacity bills is better than CPOF because product mix is incorporated. Resource Profiles is of little need because lead time is insignificant. CRP is not necessary because WIP is minimal. I/O control is not needed for shop floor because of the use of “pull”. 35

Choice of a Specific Planning Technique Rough-cut methods CPOF Capacity bills Resource profiles Most general Widely applicable Easier to implement but less powerful Useful in JIT situations Capacity requirements planning APS Systems Requires more data and computational effort Only applicable in conjunction with MRP Unnecessary under JIT Highest levels of effort High levels of accuracy possible with good data and flawless execution

4. Management of Capacity Planning/Utilization Using the Capacity Plan: Ø Ensure a match between available capacity and required capacity. If not, either available capacity or required capacity (material plan) has to be changed. Available Capacity Required Capacity Over/under time Hiring/firing Change # of machines Alternate routing Make or buy Subcontracting Raw material change Inventory change Promise date change 37

4. Management of Capacity Planning/Utilization Data Base Requirements: Ø Ø Ø CPOF: MPS, standard hours of end items, historical workload patterns. Capacity Bills: MPS, BOM, routing, labor/machine hour for each operation. Resource Profiles: all of the above + lead time for component parts and subassembly. CRP: all of the above + MRP Note: There is an increasing requirement for data from CPOF to CRP. 38

Principles Capacity plans must be developed concurrently with material plans if the material plans are to be realized. Capacity planning techniques must match the level of detail and actual company circumstances. Capacity planning can be simplified in JIT environments. Better resource and production planning processes lead to less difficult capacity planning processes. Better shop-floor systems reduce the need for shortterm capacity planning.

Principles More detailed capacity planning systems demand more data and database maintenance. When capacity does not match the requirements, it isn’t always capacity that should change. Capacity must be planned, but use of capacity must also be monitored and controlled. Capacity planning techniques can be applied to selected key resources. Capacity measures should reflect reasonable levels of output from key resources.